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Taxing the Rich

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posted on Oct, 30 2009 @ 03:34 AM
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When you consider the current taxation system - and also examine the huge gap between the rich and the poor, it becomes clear that 'social justice' is a term that government officials should use with great care.

I would like to examine the principles of taxation - is it meeting its objectives in providing for the citizens, and does it reinforce social justice?


With respect to the issue of social justice - I bring your attention to the following oft quoted statistic;

5% of the population controls 95% of the wealth.

Please bear with me if my percentages are not quite right, and feel free to correct it in following posts. Regardless of the exact figures - it is clear that it is social INJUSTICE, not social justice that has been achieved.


With respect to the issue of taxation satisfying the needs of, and working to the benefit of, the citizens of the state, firstly lets examine the most obvious expectations.

Taxes are collected and spent by governments in order to provide things for the collective good of the people. These services can be identified as public service because they would be compromised in quality, extent and value if driven by a profit motive.

In other words, if we substitute private industry for public administration for these services, then the outcomes are likely to be for the good of the service provider, and not for the general benefit of the people.

Such things may (or may not) include;

Infrastructure, law and order, utilities, emergency services, medical, education, defense, social (unemployment, retirement) benefits and so on.


Are these tax dollars actually benefiting people? Are they benefiting you?

To help you answer these questions, I present a few questions you might ask yourself.

Can you point to the exact benefit to you that is arising from invading Iraq? Afghanistan? Is your medical care and education - free and high quality? Law enforcement and justice professional and for your personal benefit?

Does invading foreign countries actually defeat terrorism - or does it breed it? Many countries have completely free medical care, and higher education - does yours? Are your laws easy for you to understand and put into practice, or do you need a highly paid professional to help you - because its like its been written in another language specifically to confuse you? Are police getting militarized - and abusing human rights?

Is any of this directly making your life better?

Chances are, even if you answered the last question positively - it is a very grudging yes. The benefits really don't seem to be as obvious as they should considering the costs.

The reasons for this discrepancy are fairly obvious on inspection. Even if you don't believe in the NWO (or global elite) you will be familiar with the impact of wealthy special interests on the government. They are able to determine where money is spent - so in fact most money is spent in such a way as to provide benefits to the privileged few, not the average citizen.


Given that the current taxation system, and its disbursement seem to be wanting, it is pertinent to ask ourselves - is there an alternative system?

The answer of course, is yes - there are alternatives.

Taxation is based on the assumption that taxing a person based on their income (or production) is moral, practical and acceptable.

I would contest that assumption, and define it as an egregious fallacy.


These are the direct effects of taxing production (labor);

Increased cost of labor.
Disincentive to work harder or longer.
Reduction of head count a business objective.
Desire to create wealth by speculation rather than labor (less tax)
The wealthy gain more wealth with little to no production, but less tax.
The worker carries the main burden of tax.

#######################################################

AN ALTERNATIVE TAXATION SYSTEM - TO PROMOTE SOCIAL EQUITY

Let me suggest an alternative basis for taxation - taxation based on gross assets. That is - each individual or business must pay tax based on the value of the capital it directly owns and controls.

Lets have a look at this system in detail.

For purposes of explanation I will use arbitrary values, which should be considered purely illustrative and and not definitive.


Lets say that we divide the tax system into personal and business. Further, let us assume that the system is a sliding scale based on wealth.

Here is a possible range of values for personal taxation.

The tax rate presented is to be applied to the GROSS assets, and a dollar amount calculated. This will be the total tax bill for that year. For purposes of this illustration I will use dollar values, but gold ounces are a better and more durable measure - you can equate roughly 1oz gold = $1,000 at current prices.

Rate - Personal Assets
0% - under $100,000
5% - $100k to $1Mill
10% - $1Mill to $10mill
15% - $10mill to $100mill
20% - $100mill to $1bill
25% - $1bill or more

For businesses (corporations or whatever) the total wealth in each bracket can be multiplied by 10x, so any business under $1mill gross capital would be exempt from tax.

As I discussed this is illustrative only - in practice you would use the linear equation that represents this chart to define taxation levels in a smooth way, removing all the nasty artificial break points.

So you can see that any individual with assets over $1bill, and any business with assets over $10bill will be subject to a 25% tax on assets. Earning 25% on your wealth every year requires good fortune, and also great innovation and production. I see no reason not to extend this even past 30%, at some point the ability to achieve more wealth will disappear creating an effective ceiling on personal wealth, and business size.

Those who resided at the top and stayed there would be very few and far between. Generally, erosion from the top towards lower brackets would be expected. That money would be recycled to the people via taxes, and spent (hopefully) for the benefit of society.

It should be made clear at the outset, when this system is applied - that income tax on production is removed entirely. This means that costs associated with production and labor are much reduced, and business and economic activity will be stimulated as a direct result. Whatever your earnings - there is no tax on it. Whatever assets (including capital goods) you accumulate however, that is the basis of your tax. Capital goods including buildings, vehicles, plant and equipment depreciate over time. For this reason the taxable value would also decrease over time – at the end of their expected life, a surviving asset would be tax free.

(Continued on next page - )

[edit on 30-10-2009 by Amagnon]




posted on Oct, 30 2009 @ 03:35 AM
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Now, I will explain a variety of issues and questions exposed by the above set of values.

For the benefit of those who wish to delve to the heart of the matter, here are the basic reasons why you would tax wealth not production - why it is in the interests of social justice, and beneficial to the economy.

Many rich individuals today did not accumulate their wealth personally; it was passed on to them by an ancestor, whether through production, genius or discovery. Is their wealth a reflection of their benefit to society, of their own genius, production or discovery? Or is it more correct to say that they are simply free loaders on their ancestral success and that they could possess the skills and ingenuity of a windup toy and still retain a preeminent place in society and business? Obviously, it is the latter.

Likewise, many large corporations are more historical relics than useful and vibrant competitors in industry. Their large size, market share, monopolies, and influence are more directly credited with their ongoing existence than any innate business capability. For a classic case in point, the investment banks that received huge bailouts by the public – can we really say they are the cream of business? Or does their existence rely more on their political influence and monopoly? Again, the question is rhetorical.


We should then ask ourselves, why is it that Joe Average is paying all the taxes for society, but the benefits seem to be delivered to special interests whose share of the tax burden is minimal at best, and in the worst cases they actually appropriate huge sums from the public purse? Goldman Sachs is a nice case in point.

The answer is because the principles of taxation are flawed, and in no subtle way – rather in glaring and obvious opposition to the principle of social justice and fairness. Furthermore, taxing productivity is clearly counter intuitive – when the basis for economic strength is production. Why would you put a brake on the driving force of an economy?

So, let us then move on to more practical questions of the impact of altering the basis of taxation from production to wealth – what is going to happen? What impacts would it have?

Before moving on to the impacts, it is important that I define what is meant by gross assets. This is the total value of assets under a person’s control. Debt is ignored, it is not a factor – it is not deducted. The justification for this is simple, if it was allowed then individuals or businesses could use complex leveraging methods to drop their net assets to close to zero – sidestepping the system. This simple rule would prevent that kind of trickery.

It is also worth noting that the owner of a mortgage is the person who ‘owns and controls’ the underlying real estate. This would place lenders in rather a quandary – it is likely they could not afford to hold the mortgages, so they would likely surrender the titles to the owners. This would mean they would no longer be able to foreclose – the impact on society would be beneficial. They still could sue through civil court, but they could not kick you out of your home.

Personal Impacts

What impact would these changes have on individuals? Well, for the most part the change would be a dramatic reduction in tax. In the case of people who have not purchased any real estate, the likely impact is that they will not be paying taxes. Assets could be divided with a spouse, meaning a family is able to own assets up to $200k and not pay tax. Houses and vehicles depreciate – so a house older than 20yrs, or a vehicle older than 10yrs attract no tax – with a sliding scale from new to end of life tax valuation. For all families this is likely to mean a huge saving in taxes.

For those at the other end of the scale, they would really need to make their money work. That means it would need to be injected into the most effective businesses and investments that are making profits. Large yacht’s and palatial mansions create no income, so you would expect a cut back on luxuries and an increased focus on investing their money wisely. That should mean an improvement in the economy.

As for tax deductions – well there is a whole range of things that could be done. Giving property away to family members would be fine, so long as they really are going to have use of it – otherwise its fraud. This would mean that philanthropy would have economic advantage, and there would be a real stimulus to share the wealth. Donating to the local community, scholarships, libraries and so on – all tax deductable. I would however set a limit on the amount of tax deductions available – or it is open to abuse. Not all would use these avenues though, and tax revenues from the top 5% of the population, who hold 95% of the wealth, would provide an incredible amount of tax revenue – like has never been seen before. In the wake of a change like this, the public coffers would be over flowing.

Over time, those who inherited wealth, but were not in the same order of genius as those who first accumulated the fortune would slowly lose their privileged position, and the gap between rich and poor would be narrowed. Those however who retained the vital spark of energy that created the fortunes in the first place, would manage to maintain their wealth. In the end, private fortunes can still be considerable, (using the table values I produced as an example) up to $100mill still only attracts 15% tax, and 15% returns are certainly an achievable (though challenging) target. Billionaires on the other hand would likely come unstuck – and I feel that those levels of wealth are clearly excessive, and not aligned with a healthy social structure.

Business Impacts

As for business – small would clearly be better. The focus would shift from growth, to efficiency. That paradigm shift must have positive social, economic, political and even environmental impacts. Large corporations would simply find themselves ‘too big to survive’ – and they would have to break into smaller units.

This would erode or hopefully destroy their unfair advantages and influence; it would also create niches for specialized service industries. As businesses divested themselves of as much overhead as possible, then small businesses specializing in human resources, accounting, engineering, logistics and so forth would spring up to service them. Due to size being a deterrent, then small efficient businesses would fare best.

A spin off benefit for industry is that manpower costs would decrease, because no tax would be applicable, and unskilled, and semi skilled labor would likely be very cheap (even though these people would themselves have a net increase in income due to no tax).

The largest and most obvious benefit to everyone would be the reemergence of competition as a source of innovation and efficiency in the market place. As the great whale’s founder and sink, so the schools of agile smaller fish would swarm with cunning and agility.

One issue that is also worthy of elaboration is the issue of industry that by its nature requires a very large asset base. Such industries are; mining and resources, heavy industry – such as aircraft, heavy vehicle and train manufacture and a variety of other similar industries. Industries of this type can almost always be classified as ‘strategic’ for the economy concerned. They are so large and vital that whole cities or large towns may depend on them. Therefore in those cases, it would not be extra ordinary for the government itself to be a large shareholder. This would allow the business to decrease its asset footprint, and also allow the government (and hopefully that means the people) a voice in the management and direction of those strategic industries on which large populations may be dependent.

(Continued next post - )



posted on Oct, 30 2009 @ 03:36 AM
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In conclusion, I think there is an excellent basis for changing the principles of taxation away from production, and focusing on wealth, or assets. The advantages are fairly self evident, and although there are sure to be unintended consequences – I feel that a slow transition to this style of taxation would result in a far more fair and just society.

Of course – fat chance of ever seeing it this side of a revolution. I hope you have enjoyed this article – feel free to pose any questions, I’ll have a look at this thread occasionally. I hope the subject matter does not deter people from having a look at a real alternative to the social inequity that exists today.



posted on Jul, 15 2011 @ 10:52 PM
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Thanks for your interesting and well written post on Taxing the Wealthy.

I can hardly believe that you have not had a response to this set/series of post(s) as it is quite interesting to me, and I would think to others. You really wrote a very polished presentation and it was a pleasure reading it. It went in with difficulty, though, because I have some assets and worked hard to get them. In fact it is evident that I am "owned" by my assets. That is, I spend more time taking care of my "things" than I do conversing with my loved ones (wife, children, grand children, etc.). So it might help me to live under a tax system such as you describe. However, there are some problems with it for me, so I have some suggestions as to how I might improve on your plan. I hope you will respond to this, even though your original post seems now two years old and I would not be surprised if you have by now stopped visiting or monitoring this series of posts by now.

I'm retired. Most of these items, quoted from your proposal, don't seem to affect my situation except insofar as I implement ordinary business policies to increase my net income:

"These are the direct effects of taxing production (labor);

Increased cost of labor.
Disincentive to work harder or longer.
Reduction of head count a business objective.
Desire to create wealth by speculation rather than labor (less tax)
The wealthy gain more wealth with little to no production, but less tax.
The worker carries the main burden of tax."

So, while it is true that I try to keep my costs down and rents up and I may think the current tax situation is completely immoral, it may soon be seen that the one you propose is also immoral with respect to me and may be as ineffective as the current tax regime. But I'll get to that in the next post, along with some suggestions for improvement.



posted on Jul, 15 2011 @ 11:33 PM
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As a tax lawyer, I find your proposal interesting. There are a couple problems I could think of at this moment.

1. Valuing Assets.

How do you propose we value assets. With the income tax system it is generally easy for most people to value income and determine the tax one pays based on that value. The value of wages, gains and losses on sales of assets, interest, dividends, and other common forms of income can be calcuated relatively easily and with a high degree of certainty.

For example, let us say someone made $50,000 in wages, earned $1000 in interest from their savings account, and lost $3000 selling stock. That person's gross income would be $48,000. ($50,000 wages + $1000 interest - $3000 loss on stocks) Seems pretty simple.

Now let us calculate what that person's income tax would be based on their wealth. It may be easy to value the cash this person has and the value of their stock portfolios, but it is very difficult to determine the value of their other assets. People will need to hire appraisers every year to value property like houses, cars, shares in small businesses, and all the items people may have in their home.

2. Your system seems to encourage consumption and discourage saving and investing

Under your system, the person that invests their money is punished. The person blows all their money is rewarded with little or no tax liability. Under the current law, there are at least some incentives to save and invest. People can get tax breaks for IRA's and 401(k)'s.



posted on Jul, 15 2011 @ 11:35 PM
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reply to post by Amagnon
 


Although no doubt some corporations are historical relics, it appears that in the field of global commerce that many US multi-national corporations are evolving rapidly and trying to grow even larger as the world grows in commerce. There may be some economies of scale above the $1 million of capital benchmark, as I think you pointed out. Taking Apple, Boeing and Caterpillar as examples A, B and C, all of whom make physical products and have large budgets for innovation and invention, it appears that all three grew from something smaller and found it beneficial to be large. And this is intentionally a list devoid of banks and financial companies, which, while large, do not make physical products, and often received "bailout" money. Is it not likely that if we over-do the taxing on capital (size) that we will reduce investing in progress, new products, and other research, and finally lose out to Asian and European competitors who are larger and retain their larger budgets for innovation and have less penalizing tax structures? Worse yet, won't we likely lose the corporations A, B and C to other countries with lower taxes? In fact we have already lost many, have we not, for that very reason? And if you say that B and C will be partly owned by the government, OK, but what about Apple? Or what about the corporation that is quite innovative like Apple but has all the innovation and production "outsourced" and all the transactions performed from some offshore island tax haven so that unrepatriated profits stay offshore to avoid taxation while the executives "get" to live in the US if they choose while their corporations pay little or no taxes under this scheme? (Apple may not be employing all of those tax and profit gimmicks, but some corporations do, and pay zero taxes therefore, and grow ever larger because they are so profitable and price competitive.)

None of that applies to me, however. I am just a real estate owner, or maybe not since you say my lenders own most of my real estate. I thought I controlled it as long as I made the payments, but the latter can be pretty touch and go lately. In any case I can be "kicked out of my home (apartment houses)" if I don't make the payments, so your remark that it can't happen under your proposal needs some fleshing out for me to fully understand your point of view. I would love to find that I can't be kicked out, but I don't yet understand why.



posted on Jul, 15 2011 @ 11:41 PM
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reply to post by hotpinkurinalmint
 


I love your handle, hotpinkurinalmint! But I forgot to copy down your argument, so I will have to re-post a little later when I have a copy of it to discuss from.



posted on Jul, 15 2011 @ 11:47 PM
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reply to post by hotpinkurinalmint
 


I was going to say that being in the real estate business (retired) that appraisals can certainly be affected by the income (net after taxes) approach, and that the assets may well have little or no value under this regime proposed (Tax the Wealthy). Here is what I was going to say about that in a few more words:

First, I am retired and living off of net rental income from three apartment houses and a small pension. My apartment houses are (or were, before the credit crisis) in the $4-5 million range gross value, so are subject to a 10% tax under your suggested tax table. I calculate that would be $450,000 in tax per year if the properties regain their former values. Most apartment houses do not make 10% in net income even if without debt, and for certain mine do not. Apartment houses may be sold at approximately ten times net earnings these days, so most can not, at today's prices, pay 10% taxes and still have a return left over for the owner to live on, if retired. And when I bought mine I bought with some borrowed money and some cash down payment. So in my case an abrupt change to the system you propose would mean that I could not pay my mortgage and would have to sell. But nobody would buy one for more than $1 million since the tax would equal the entire net income and so would not be attractive to anyone. I guess your notion that the government might own a share of it could come into play. I might give away all but $100,000 worth of each apartment house to the government to get into the 0% bracket and hope to get up to $10,000 per year of net income per apartment house from my share. If the government would pay off my mortgages out of my gift, I would end up with income of up to $20,000 per year which would sound reasonable except that it is less than my current home mortgage payments, so I would become a renter and could not pay off my home mortgage, so I'm not sure I would not be sued for the deficiency and lose the $200,000 worth of apartment equity I had been fortunate enough to keep. (The third apartment house would be a total loss as the mortgage exceeds the current value at this time).

As with all tax systems I have become familiar with (except, possibly, the Fair Tax, which see at fairtax.org), taxpayers will "game" the system until they pay as little tax as their ingenious minds will find possible. In this example I would be looking for something to "save" me from bankruptcy, so I would be ruthless in this effort. My first thought would be to syndicate or sell shares in the apartment houses that I own so that no share would be worth more than $100,000 (or $1 million if sold to a corporation) and therefore avoid all taxes for the new owners. I would then sell all these shares except one so that I also avoided taxes. I would then take any excess money and run, probably to an offshore tax haven, where I would reinvest that money, and if necessary give up my citizenship so as to not have to pay tax to the US on what I bought offshore with the money. No doubt all the taxpayers that felt the need would hire others (CPA's, etc.) to help them do some sort of thing equally advantageous, and there might not be much gain to our society from the currently wealthy, therefore. I'm afraid the same would be true of future generations as well. What I see now is that corporations are doing essentially this sort of thing already, just to escape current taxes, which are significantly less onerous than what would be the case under this system. So all we have done here is cause the CPA's some effort and a whole new set of seminars in how to avoid the new taxes.



posted on Jul, 16 2011 @ 01:48 AM
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reply to post by Amagnon
 


So to conclude, perhaps, what I might do to "improve" your proposal to Tax the Wealthy, which I think is a necessity at this time and overdue to boot and needs to redress the huge and iniquitous growth of wealth at the top and give the rest of us a little more of a share in the economy, I offer this:

a. Start with the Fair Tax (fairtax.org), which eliminates the income tax, IRS, withholding taxes (yes, all of them), corporate income tax (they don't pay it anyway, and if they did they would pass it on to us in higher prices)

b. Consider adding some estate taxes when the sums get disgusting (over $100 million?) but realize that these taxes won't get paid (they will be eliminated by smart CPA's and tax lawyers by creating estate tax exempt charitable foundations or whatever other loopholes get created, and they will and always have been created)

c. Stop paying all interest on excess reserves deposited with the Fed (a requirement for the reserves that are required, but a gift when the excess is from "bailout" money)



posted on Jul, 16 2011 @ 05:51 PM
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reply to post by EvSenter
 



Corporations and rich people have ways of "shaving" their tax bills and sheltering income, but they do not legally get away with paying zero tax all the time. True, there are some individuals with agressive tax planning strategies that might get away with paying zero tax, but these individuals would get hammerred if they ever got audited.



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